Sitting in a cafe on Manger Square in the heart of the deserted city of Bethlehem, the slim, unshaven guerrilla sipped a Turkish coffee and nervously fingered his revolver. The commander of the Al Aqsa Martyrs' Brigades in the region just south of Jerusalem, Ibrahim Ebayat, 29, boasted that he had carried out a dozen "operations" against Israeli settlers and soldiers in the occupied territories in recent months. He told NEWSWEEK that gunmen under his command staked out a Jewish settlement for a week, then killed a female settler and wounded her husband last Tuesday as they drove down a road near Bethlehem. "We could kill 10 times as many Israelis if it were just for the sake of killing," he said, as his heavily armed bodyguards kept watch outside the restaurant. "But we're trying to send a message: 'You are not safe. Get out'." Ebayat, who said he has survived three Israeli assassination attempts--including a booby-trapped M-16 rifle that exploded and blew off the hand of a comrade--doesn't expect to survive the intifada, the 18-month-old Palestinian uprising. "Plenty of others can take my place," he said. "None of us have anything to lose."

Israel's bellicose Prime Minister Ariel Sharon may have met his match in men like Ibrahim Ebayat. All of Israel's high-tech weaponry and well-trained soldiers are proving inadequate against a growing army of Palestinians--hardened fighters ready to die for their cause. In one 24-hour period last week, Palestinian militants killed 21 Israelis, the greatest number of Israeli deaths in a single day since the Tel Aviv discotheque bombing last May. Sharon responded with unprecedented violence. On three successive nights, Israeli forces shelled the compound in Ramallah where they have penned up Yasir Arafat for weeks; one barrage narrowly missed the Palestinian leader as he was conferring with an envoy from the European Union. Sharon also sent F-16 jets to rocket Palestinian Authority buildings, and ordered Israeli troops and tanks into Bethlehem, Tulkarm and the Gaza Strip in a bloody house-to-house search for Palestinian militants. More than 40 Palestinians were killed last Friday, the highest death toll since the intifada began. "The Palestinians have to be hit hard," Sharon told the Knesset. "We are at war with a bloodthirsty enemy. It's us or them."

That pushed Washington into a serious peacemaking effort for the first time in several months. President Bush's special Mideast envoy, retired Marine Corps general Anthony Zinni, was sent off on what one U.S. official described as a "desperation trip." This source explained: "We didn't think things could get worse, but then we realized we're only in second gear. There is another gear after this, and both sides were torquing it up." American officials were particularly upset by Israeli actions that some thought might verge on war crimes. These included firing on a hospital and at least five ambulances, as well as a botched assassination attempt on a militant Hamas figure that killed two mothers and four children. Secretary of State Colin Powell rebuked Sharon in testimony before Congress. "If you declare war against the Palestinians thinking that you can solve the problem by seeing how many Palestinians can be killed," Powell said, "I don't know that that leads us anywhere."

The bloody standoff threatened to undermine a visit to the region this week by Vice President Dick Cheney. He wants to talk to Arab leaders about the war on terrorism, among other things, and try to drum up support for the administration's pet project, the overthrow of Iraqi dictator Saddam Hussein. The Arab-Israeli struggle is a major impediment to Bush's grand design. The peace plan recently floated by Saudi Arabia could take some of the pressure off Washington, but not if Arafat cannot attend an Arab summit in Beirut on March 23 at which the Saudi proposal will be discussed. Hoping Zinni can quiet things down, Bush said pointedly that he was "counting on all parties in the region, Prime Minister Sharon included, to do everything they can" to make the general's mission a success. Sharon apparently got the message. He gave up a key demand, indicating that he would negotiate with the Palestinians without insisting on an unbroken week of peace beforehand. For their part, the Palestinians announced the arrest of the final suspect in the killing last October of an Israeli cabinet minister. But then on Saturday, fresh Palestinian attacks in Israel left at least 11 dead and scores wounded.

Sharon's conciliatory gesture shows how badly his military strategy has backfired. Though Arafat has been trapped in a box, surrounded by Israeli tanks, Sharon is the leader who has been placed on the defensive. His position has been further weakened by a growing sense of insecurity inside Israel. Gun sales have risen 75 percent in the past year. Israeli newspapers are filled with daily tips on how to protect oneself against terrorist attacks. The Army is demoralized after a series of deadly ambushes, and Sharon's fragile unity government is in danger of falling apart. Last week Foreign Minister Shimon Peres, a leader of the Labor Party, Sharon's biggest coalition partner, condemned the crackdown on the Palestinians. "If I knew the situation were going to get this bad, I never would have joined this government," said Peres. In opinion polls, Sharon's credibility rating has dropped sharply, and with the Palestinian side more united than ever in its determination to withstand and outlast attacks, many Israelis have begun to mutter the once unthinkable: Israel is losing the war. Danny Yatom, former head of Mossad and a security adviser to former prime minister Ehud Barak, says: "Using force will not bring us to a point where we will be able to say 'We crushed the Palestinian resistance'."

Sharon's dwindling prestige marks a reversal from three months ago. Following a series of suicide bombings in Haifa and Jerusalem that killed 25 Israelis, Sharon went after Palestinian militants with barely a word of protest or caution from the Bush administration. Arafat faced international ostracism, disaffection among his own people and the threat of civil war with Hamas and Islamic Jihad. But Arafat reasserted his leadership with the mass arrests of militants and with his December 16 call for a ceasefire, which brought a virtual halt to the violence for three weeks. Israel's decision to confine him to his compound in Ramallah helped to transform Arafat into a beleaguered symbol of Palestinian resistance. And Sharon's brutal crackdown has given Arafat an excuse to relaunch the intifada, this time marginalizing both Hamas and Islamic Jihad. Last month, sources say, Arafat gave the "green light" to his Fatah militias to target Israeli military checkpoints, a strategy that has raised Fatah's prestige--and Palestinians' morale. "Arafat is telling his people: 'We are fighting a battle for our survival'," says Bethlehem University political analyst Manuel Hassassian.

One of the most devastating attacks took place last week at a roadblock near the Jewish settlement of Efrat. Firing from behind a tree, a single Palestinian sniper picked off six army reservists and a paratroop officer, along with three civilians. It was the largest number of reservists killed in one day since 1985 during the Lebanon war, and it prompted angry calls in the Israeli media to replace stationary roadblocks with mobile units, or to abandon the checkpoints entirely. Many soldiers say they saw the ambush coming. "We are telling [the top brass] all the time that the roadblocks are dangerous, they cannot be defended," says one reservist who has served in the West Bank. "The troops are tired, they're not concentrating, they are standing there for hours with heavy equipment. As long as the roadblocks remain frozen, it will continue to happen."

The checkpoint attacks are increasing demands for a near-total withdrawal from the territories. Growing numbers of Israelis have begun to question why their sons and brothers are risking their lives to defend isolated Jewish settlements. About 300 Army reservists have signed an open letter refusing to serve in the West Bank and Gaza, and the swelling ranks of "gray refuseniks"--reservists who have gone into hiding or fled the country--could leave some units in the territories dangerously undermanned. The carnage has revitalized the peace movement; thousands have shown up at rallies for Peace Now and other groups to demand that Israel withdraw to its pre-1967 borders. "Those pictures of dead soldiers are very hard for Israelis to take," says one Army reservist who has refused to serve in the West Bank and Gaza. "Eventually these incidents will get Israelis out on the streets to say 'Enough is enough'."

But that may still be a long way off. For now, many observers are pinning their hopes on U.S. diplomatic initiative, which, they say, could finally force Sharon to the bargaining table. The Saudi Arabian peace initiative, which calls for the withdrawal to pre-1967 boundaries in exchange for Arab nations' recognition of Israel, could serve as a starting point for negotiations. But a top Arafat aide who met privately with Sharon last month scoffs at the notion that the Israeli leader is willing to make serious concessions. "Sharon has nothing to offer the Palestinians," he says. For Ibrahim Ebayat and his band of guerrillas, the only expectations are more killing, and a bloody end.